Economic valuations and benefit transfer in ARIES Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University

Economic valuations and benefit Economic valuations and benefit transfer in ARIEStransfer in ARIES

Joshua FarleyJoshua FarleyCommunity Development and Applied Community Development and Applied

EconomicsEconomicsGund Institute for Ecological EconomicsGund Institute for Ecological Economics

University of VermontUniversity of Vermont

Function of values and valuationFunction of values and valuation

A feedback signal, generally A feedback signal, generally quantitative, that can help achieve a quantitative, that can help achieve a particular goal or goalsparticular goal or goals

Need to define goals before deciding Need to define goals before deciding correct approach to valuationcorrect approach to valuation

Conventional economic goalsConventional economic goals

Efficient allocationEfficient allocation Maximize net present monetary valueMaximize net present monetary value

Rising MC= diminishing MBRising MC= diminishing MB Market price = marginal value = MC = Market price = marginal value = MC =

MBMB Determined by intersection of supply Determined by intersection of supply

and demandand demand Demand = preferences weighted by Demand = preferences weighted by

purchasing powerpurchasing power One dollar, one vote. PlutocraticOne dollar, one vote. Plutocratic

Economic SurplusEconomic Surplus

Quantity

Pri

ce =

marg

inal valu

e

1

.50

1.00

1.50

2.00

2.50

3.00

2 3 4 5 6 7 8 9 10 11 120

Producer surplus

S

D

Consumer surplus

Economic surplus = consumer surplus + producer surplus

ValuationValuation Estimate market price of non-market Estimate market price of non-market

ESES Approximate marginal benefit for Approximate marginal benefit for

existing supplyexisting supply Provides feedback signal to decision Provides feedback signal to decision

makers’ efforts to supply amounts that makers’ efforts to supply amounts that maximize monetary valuesmaximize monetary values

Major concernsMajor concerns Is maximizing monetary value Is maximizing monetary value

appropriate goal?appropriate goal? IncommensurabilityIncommensurability

How much for your daughter?How much for your daughter? Marginal valuation, ecological and Marginal valuation, ecological and

economic thresholds, uncertainty economic thresholds, uncertainty and ignoranceand ignorance

Ignores future generationsIgnores future generations

Ecological economics goalsEcological economics goals Desirable scaleDesirable scale

How much natural capital should be allocated How much natural capital should be allocated towards economic production, how much towards economic production, how much should be left intact to generate ecosystem should be left intact to generate ecosystem services?services?

Accounts for future generationsAccounts for future generations Just distributionJust distribution

Who is entitled to natural capital and Who is entitled to natural capital and economic production?economic production?

Allocation of shared inheritance should not be Allocation of shared inheritance should not be determined by existing purchasing powerdetermined by existing purchasing power

Efficient allocationEfficient allocation Maximize ratio of Maximize ratio of economic services gainedeconomic services gained

ES services lost ES services lost

ARIES approachARIES approach

Quantitative estimates of flows of Quantitative estimates of flows of known valuable services from known valuable services from ecosystem to beneficiariesecosystem to beneficiaries Value of non-rival ES = sum of marginal Value of non-rival ES = sum of marginal

values across all beneficiariesvalues across all beneficiaries Value of rival ES = highest marginal value Value of rival ES = highest marginal value

to single beneficiaryto single beneficiary Not all in same units. Addresses Not all in same units. Addresses

incommensurabilityincommensurability Accounts for spatial distribution of Accounts for spatial distribution of

different servicesdifferent services

ARIES approachARIES approach

User can choose weights for different User can choose weights for different servicesservices Imposes commensurability, but Imposes commensurability, but

transparenttransparent User can choose weights for different User can choose weights for different

beneficiariesbeneficiaries Just distributionJust distribution

Monetary values one optionMonetary values one option

Sustainable Scale: Critical Sustainable Scale: Critical Natural CapitalNatural Capital

Components of natural capital that Components of natural capital that are essential to human survival and are essential to human survival and for which there are no adequate for which there are no adequate substitutessubstitutes

Small changes in quantity lead to Small changes in quantity lead to large changes in valuelarge changes in value

Serious challenge for benefits Serious challenge for benefits transfertransfer

The Demand Curve for Natural CapitalThe Demand Curve for Natural Capital

Eco

logic

al or

eco

nom

ic

thre

shold

Region 1Region 1 E.g. forests in VermontE.g. forests in Vermont Far from threshold, slow rate of change, Far from threshold, slow rate of change,

errors less importanterrors less important Price can determine conservation needsPrice can determine conservation needs Benefits transfer less riskyBenefits transfer less risky


Eco

logic

al or

eco

nom

ic

thre

shold

Monetary predictors

Region IIRegion II E.g. Puget SoundE.g. Puget Sound Estimated price sensitive to small quantity Estimated price sensitive to small quantity

changes and small errorschanges and small errors Benefits transfer highly questionableBenefits transfer highly questionable

Biophysical predictors of value more robustBiophysical predictors of value more robust Knowledge of thresholds and other Knowledge of thresholds and other

ecological criteria may be more relevant ecological criteria may be more relevant than pricethan price Can we transfer knowledge of thresholds?Can we transfer knowledge of thresholds?

Scale should determine priceScale should determine price Prices adjust to conservation constraints much Prices adjust to conservation constraints much

more rapidly than ecosystems adjust to prices.more rapidly than ecosystems adjust to prices.


Eco

logic

al or

eco

nom

ic

thre

shold

Biophysical predictors, focus on conservation

Desi

rab

le s

cale

Price

Region IIIRegion III E.g. MadagascarE.g. Madagascar Finance more important than valuationFinance more important than valuation

Willingess to pay is critical, but poor Willingess to pay is critical, but poor measure of actual valuesmeasure of actual values

Should focus on supply curve, not Should focus on supply curve, not demand curvedemand curve Supply curve downward slopingSupply curve downward sloping What is most cost effective way to restore What is most cost effective way to restore

critical natural capital?critical natural capital? ARIES can trace flows of damages and ARIES can trace flows of damages and

benefits, help combine polluter pays benefits, help combine polluter pays principle, beneficiary pays principleprinciple, beneficiary pays principle


Eco

logic

al or

eco

nom

ic

thre

shold

Biophysical predictors, focus on restoration,

finance


Eco

logic

al or

eco

nom

ic

thre

shold

Scale determines price

Monetary Values

Finance more important than

valuation

Documents

Economic valuations and benefit transfer in ARIES Joshua Farley Community Development and Applied Economics Gund Institute for Ecological Economics University